We are initiating coverage on China Life Insurance (LFC) with an Underperform recommendation. The company’s semi-annual earnings witnessed a steep decline from the comparable period of the prior year. Increases in revenue and premiums were offset by increased benefits, claims and expenses, which led to a decline in the net income.

Even the capital position remains sluggish driven by reduced operating cash flows in the semi-annual period. The company needs to improve premium earned from the short-term insurance business as well as cash from operations. Overall, we expect some downside in the near-term due to lack of any significant growth catalyst.

Our six-month target price of $32.00 equates to 15.2x our earnings estimate for 2011. Combined with the $0.81 per ADR annual dividend, this target price implies an expected negative total return of 7.4% over that period.